3 Reasons Morgan Stanley Would not Play the salesforce.com (CRM) Bounce
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Morgan Stanley analyst Keith Weiss reiterated an Equalweight rating and $270.00 price target on salesforce.com (NYSE: CRM) noting that shares have consistently outperformed the market in the 3, 6 and 12 months after the sell offs seen following their four largest acquisitions announcements over the past 10 years. However, this time, he thinks it could be different.
1) Price Paid: even Tableau was acquired at 20x EV/5-year FCF, substantially below Slack's 31x
2) Deal Timing: "Salesforce entered into a confidentiality agreement with Slack just 2 weeks after CEO Marc Benioff stated "Today, you can do the math. We would not have been able to buy them [MuleSoft, Tableau]. There's no way, no how. It wouldn’t have worked for us financially. So we're not in a good M&A environment. I just don’t see it".
3) Management Change: CFO Mark Hawkins is retiring and being replaced by General Counsel Amy Weaver effective February 1st, 2021. Salesforce did not undergo a broad search for an experienced public market CFO which is strange when considering the company's acquisitive appetitive and large market cap (>$200 billion) with high public visibility. Slack’s big price tag, high levels of dilution, and concerns around competition - combined with a new CFO with a background in legal rather than
finance or accounting - carries increased risk relative to prior deals.
The analyst stated "Working through issues of justifying the deal price, better communicating the deal rationale and rebuilding investor confidence likely leaves the shares treading water in the near term, and leaves us EW on Salesforce despite ~20% upside to our $270 price target".
Shares of salesforce.com closed at $226.40 yesterday.
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